How the Fundamentals of E-Commerce Have Changed
E-commerce is one of the most groundbreaking outcomes in the internet era and is undoubtedly a beacon of the 21st century. The scope of e-commerce extends beyond online shopping and entails B2B, B2C, and C2C buying and selling of goods and services, and even funds or data. While the first decade of the century witnessed the infancy of e-commerce ecosystems, the last 10 years saw dramatic growth. As such, what can be regarded as the fundamentals of e-commerce in 2022 is not what it used to be in 2012. Here is how they have changed over the decade.
Amazon, thanks to its e-commerce prowess, has now become the wealthiest company in the world, worth over $300 billion. Global e-commerce sales have gone from $572 billion in 2010 to $4.2 trillion in 2020. Today, over two billion people purchase goods and services from across 20 million e-commerce websites. While the e-commerce market share was 7.4% in 2014, the figure currently stands above 20% and would only inevitably increase going ahead.
In the early 2000s, e-commerce was synonymous with online marketplaces such as eBay and Amazon. Although there was an apparent need for brands and vendors (sellers) to develop their own e-commerce outlets, it was easier said than done owing to the sheer technology knowledge and overhead required to build and manage e-commerce websites. Turn-key solutions like Shopify made traction in the late 2000s, allowing anyone with a desire to set up an e-commerce store to do so with little knowledge of technology.
The idea of headless e-commerce became popular in the early 2010s was a game-changer in this regard. It gave sellers the freedom to sell online without any design or development constraints. This e-commerce architecture, where the front-end is completely decoupled from the back-end, allowed vendors to separate their e-commerce capabilities from other content management systems and website functionality. This provides greater flexibility in delivering unique customer experiences to shoppers that are typically restricted or constrained in monolithic platforms.
The explosive growth in smartphone adoption and internet penetration paved the way for e-commerce to go mobile. The trend became more apparent across developing countries, where smartphone users were an exclusive legion of their own. Many e-commerce bigshots developed mobile apps and even provided offers exclusive to app users, triggering quicker purchase decisions from the users’ side that could ultimately be capitalized to drive more sales. Besides, the move made logical sense. It ought to be easier to shop through smartphones since they are with the users at all times. Mobile wallets facilitating seamless payments made it all the easier for e-commerce to thrive. eMarketer reports that 59% of e-commerce sales are now made through mobile phones.
Expansive digital marketing campaigns continue to contribute to the growth of e-commerce sales. Businesses leverage the popularity of various online platforms to place their ads and drive online sales. Digital marketing garners better ROI by attaining better reach than any physical promotion and providing better offers and discounts.
The popularity of social media platforms like Instagram, Facebook, and Twitter in 2011 urged many e-commerce companies to invest more into social media marketing. In addition, the ascend of paid social media advertising increased their investments. According to Kinsta, 74% of consumers rely on their social networks to make purchasing decisions. Also, BigCommerce suggests that online stores with a social media presence have an average of 32% more sales than those that don’t. With the growth of video-based platforms like TikTok and YouTube, influencer marketing has become a trending social media marketing paradigm.
As the foundational medium for internet-era communications, emails became a powerful marketing arsenal for e-commerce websites. Statistics show that email marketing, when done right, could potentially yield $44 for each $1 spent. For example, email marketing was responsible for 24% of holiday sales during the 2018 holiday e-commerce season. Well-crafted emails that flaunt new products and offers to customers are not getting old anytime soon. While there are multiple channels through which businesses market their products, email continues to be a reliable and time-tested marketing medium.
Apart from product quality, marketing campaign effectiveness, and front-end user experience, the success of e-commerce initiatives also depends heavily on how products are delivered to the customers. This is where the relevance of 3PL providers comes into the picture. They offer services such as warehousing and packaging in addition to standard logistical resources. The last 10 years saw immense technological advancements that allow 3PL providers to be more proactive and flexible in their function, enabling faster delivery, and increased order fulfillment capacity. More importantly, the last decade saw 3PL services become more affordable and within reach of small and medium-sized e-commerce brands.
Dropshipping is another vibrant e-commerce phenomenon that has gained wide traction among individuals and small business owners. With products being shipped directly to sellers from the manufacturers or dedicated warehouses, dropshipping enables selling products online without the hassle of inventory procurement, management, and delivery logistics. Amazon is ironically one of the greatest examples of a dropshipping supplier.
Would the growth of e-commerce put an end to brick-and-mortar stores? The answer is a resounding no. Shopping, psychologically speaking, is an experience, and buyers continue to find joy in going ‘out’ and shopping at physical stores while being accompanied by friends or family. In addition, many buyers still prefer to experience the look and feel of the products they’re buying.
A report from Business News Daily suggests 40% of consumers purchase from physical stores at least once a week, while the same number for online sales is 27%. Switching entirely to an online store modality may be a bad idea for sellers with physical stores, even though it might seem logistically cost-effective. In this regard, some stores push both in-store and web-based sales based on seasons and festivals. They also do cross-channel promotions to generate sales from both outlets. Businesses ought to strike a balance between the two selling modalities.
This dual experience between brick and mortar and digital commerce puts additional pressure on merchants. An article from Forbes states that 90% of consumers expect a consistent experience across all channels. This means retailers need to maintain inventory, customer service, payment options, and shipping options whether they purchase in-store or online, and consistent experience between web and apps within the same retailer.
One of the biggest challenges e-commerce businesses face is the high return rate of purchased products. Most of these returns happen because users claim they were ‘not as described on the website.’ Product returns are a headache for brands, and estimated return deliveries in the US will cost the industry about $550 billion in 2020. Also, customers often abandon their carts because they feel they do not have enough first-hand information about the products. The gap between in-store and online shopping experiences has always existed, and this arguably has negative impacts on the trust users have in e-commerce businesses.
With augmented reality (AR), e-commerce brands hope to reduce this gap by providing a virtual but immersive experience that allows the users to have real-time interaction with the products in the comfort of their homes. Integration of ARAR into e-commerce websites gained popularity in 2017-18, and this approach has been of so much use ever since the COVID-19 pandemic restricted shoppers to go to physical stores. A consumer Google survey found that 66% of shoppers are interested in using AR to help them while shopping. Many brands now believe AR, by delivering an immersive experience that goes beyond product images and videos, help strengthen shoppers’ trust and drive better purchase decisions.
In the early years of the past decade, most people relied on credit/debit cards, internet banking, and cash on delivery (COD) systems for payments. However, speculations and misinformation regarding account safety and the need to go through a rather long and complicated payment process drove many people away from online shopping, often leading to abandoned shopping carts. Moreover, international e-commerce had its own share of limitations owing to different regulations set up by each country.
Since 2015, fintech advancements have removed the ‘long and complicated’ from the digital payments equation, enabling secure, fast, and mobile-friendly payments. The introduction of digital wallets by companies like Google (Google Pay) and PayPal, alongside the liberalization of regulations, has enabled international e-commerce to thrive, especially in developing nations. As a result, digital payments are now being preferred by 43% of the global customers and are the most popular mode of payment in regions China and Eastern Europe.
The boom of blockchain technology and cryptocurrencies in the latter half of the past decade is worth mentioning. Over 22,000 outlets worldwide currently allow customers to pay with cryptocurrencies, especially Ethereum. Blockchain makes online transactions more secure, faster, and cost-effective since they remove the middleman—the bank—from the trade and cut down their charges.
Unlike regular e-commerce websites, e-commerce marketplaces connect sellers and buyers directly, with all transactions being facilitated by the marketplace websites that take a share of each sale. Marketplaces have been in the picture since the beginning of the 21st century, in the form of eBay, Craigslist, Amazon, Alibaba, and more. As they gained more popularity by the 2010s, small vendors and businesses could leverage the reach of these platforms and sell their products directly to customers across the world. Buyers could now contact sellers directly to resolve any issues regarding the product, its delivery, or services, which improves customers’ trust and consequent sales. 57% of online shoppers have purchased from an overseas seller.
For example, the net sales done on Amazon have ascended from $19.34 billion in 2014 to $74 billion in 2020. A survey by Jungle Scout of nearly 5,000 Amazon brands and sellers suggests that 19% have made more than $1,000,000 in sales since starting their Amazon businesses, and 58% of those sellers did so in fewer than five years. 85% of Amazon’s third-party sellers are profitable. Juggernauts like Facebook have also introduced their own marketplace platforms. Marketplaces gave a safe outlet for small and medium businesses to increase their business radius and revenue.
By the second quarter of 2020, the pandemic took the world by storm, forcing most retailers to adopt e-commerce selling for survival’s sake. The first few months saw a massive dip in online sales, arguably due to global supply chain disruptions and travel restrictions. But it revived strong by the end of the year. Even people belonging to older age groups, who may have not even ordered anything online previously, began getting acquainted with using e-commerce platforms.
One of the most radical e-commerce trends in the wake of the pandemics was the growth of grocery e-commerce. People began to order groceries and food products online due to lockdowns, social distancing mandates, and inconsistent timings of retail outlets. Many retail stores introduced local delivery services by setting up e-commerce websites on their own. The pandemic has also accelerated the growth of third-party delivery services that could better deliver the shipments.
The pandemic has forced retailers to find ways to provide goods and services without risking public safety. While contactless delivery is good, safety adherence is still a challenge. E-commerce companies have also started to invest more in protecting the health of their employees, especially those involved in warehouses and supply chain operations.
Needless to say, the pandemic has radically influenced customers’ purchasing decisions. Most customers have made significant changes to their financial priorities, increasing the demand for certain products and services over others. Many continue to buy essentials rather than vanity products and are ready to buy them in bulk. Besides, most countries see a fall in COVID cases followed by a sudden surge, making it difficult to predict the sales trend. A survey by the United Nations Conference on Trade and Development (UNCTAD) shows a rise in the number of online shoppers but a sharp decline in the amount spent by each buyer. E-commerce businesses struggle to keep their inventory aligned with the fluctuating demands and market conditions. Another UNCTAD report suggests that online marketplaces have performed better than e-commerce companies.
With e-commerce trades growing by leaps and bounds, businesses, driven by consumer demands and convenience, strive to push the envelope further. From an innovations standpoint, delivering an online shopping experience that comes close to traditional physical shopping is what e-commerce innovators are working hard to unlock. This is where the notion of experiential e-commerce is gaining relevance. To this end, augmented reality (AR) shopping allows customers to do ‘virtual try-ons’ of, say, garments. Businesses have also adopted multiple ways in the form of Influencer giveaways and contests. The idea is to give customers an immersive feeling— an authentic, wholesome shopping experience that rivals traditional shopping. Experiential e-commerce is still in its infancy. When the notion inevitably matures in time, it promises to redefine the way e-commerce is consumed.
The online world has its fair share of flip sides, with cybersecurity and cyber risks being the prominent ones. While the world is witnessing an unprecedented growth of e-commerce, cyberattacks on and around e-commerce websites, marketplaces and users continue to rise. In addition, users’ / online shoppers’ lack of knowledge around safe browsing practices and cyber threats has caused them to fall victim to, say, phishing attacks and online fraud. Also, e-commerce websites that fall victim to cyber-attacks find their reputation tarnished. Below are some prominent ‘cyber-undesirables’ that particularly affect e-commerce ecosystems and users.
Users are used to seeing a ton of online ads on social media and websites put out by many online stores that promote their offers, shopping festivals, promo codes, and more. While most of them are legitimate, there are fake advertisements that appear to be from real vendors. Upon clicking them, users are directed to a malicious server, and malware could be installed on their system.
E-commerce websites become fertile lands for financial frauds, identity thefts, and data breaches. For example, attackers often use stolen card information to order products from online stores without the knowledge of the actual owner. They also raise fake refund requests assuming the identities of real users.
This is one of the most common cyberattacks on e-commerce websites where the attacker infects the checkout page via malicious code to steal the personal and financial details of the user. The skimming hack of Tupperware.com was the most notable one in recent times.
Customers are often attracted to promotional emails, and some cyber attackers exploit this tendency through phishing emails. Users see emails, seemingly from a legitimate e-commerce store that contains fake promotional content that urges the users to click a link or download malicious software.
The last 10 years saw multi-level paradigm shifts happening across the e-commerce landscape, fueled by an apparent demand and technology growth. This would only evolve further in the coming decade. There’d obviously be a lot of surprises that time is yet to ‘unbox.’ Here are a few conclusive outlooks in that regard.
The e-commerce potential is enormous, given that 41% of the stores in the US alone still haven’t switched their business to online platforms. The next 10 years will see more people using the internet, which will generate more sales and revenue. Statista predicts e-commerce sales to go as high as $6.38 trillion by 2024.
The pandemic may very well be far from over. Amidst reducing the number of COVID cases and the development of vaccines, most governments continue to enforce restrictions. There have been occasional lockdowns due to unexpected surges in positive cases. The unpredictability might remain for at least two years, and most businesses are expected to invest lesser in in-store initiatives.
Cryptocurrencies are getting popular each day, and this will urge more e-commerce stores to accept payments in cryptocurrencies. In addition, the fact that they serve as a more secure version of digital payment makes them more attractive to buyers and sellers.
With advancements in voice recognition technologies and the popularity of offerings such as Apple’s Siri and Amazon’s Alexa, voice searches have been gaining traction since the late 2010s. It is only a matter of time before this trend goes mainstream in the e-commerce world. Many online stores have already begun to enable voice search. Leveraging AIAI technologies in this regard could further influence purchasing decisions. Voice-enabled smart assistants could very much become virtual salesmen on e-commerce platforms.
Drones would replace human delivery executives. The technology has matured pretty well in the past decade and is on the brink of mass adoption from an e-commerce order fulfillment standpoint. While behemoths such as Amazon are already using drone delivery to their advantage, many third-party delivery companies are already undertaking trial runs.
All that being said, it’s very less likely that in-store purchases would be rendered obsolete. People still cherish physical shopping experiences. When the dust of the pandemic settles, in-store sales would inevitably gain more traction. To this end, most e-commerce vendors could soon find themselves needing to establish brick and mortar presence. Full Circle!
Just-in-time inventory management has become prominent in larger retailers as a way to reduce stock on hand and warehousing/stock room requirements by having their vendors and manufacturers deliver stock to their stores or distribution centers just before shelf inventory runs out. This same technology will find its way into everyday consumer purchases, allowing the right product to be delivered directly to the consumer without the consumer needing to take action which will improve brand loyalty and stickiness. This will be a balancing act as consumers are becoming more concerned about big data and how they are being monitored online and in the physical world.
This article was last updated on February 1, 2022.
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